1. Suppose that the Marginal Abatement Cost function and the Marginal Damage function for an industry are given as follows: MAC = 100 - 0.8e MD = 0.2e For simplicity here, we are assuming that they are linear. a. Graph the MAC and MD curves for this industry. Make sure you are marking out any and all relevant axis intercepts. b. Suppose that an emission tax is imposed to achieve the efficient outcome, at what value should the government set the tax? Explain. c. At the efficient tax established in part b. what is the expected level of emissions? Explain. d. At the efficient tax, what is the dollar amount of the tax payment by firms to the government? Explain. e. What is the total abatement cost incurred due to the tax? Explain. f. What is the total cost to the firm with this emissions tax? Explain. g. Which policy is more costly to the polluting firm? An efficient standard or an efficient emissions tax? Explain. Use numbers to support your answer. Hint for Question 1: remember from basic algebra how to calculate the area of a triangle A = (1/2)×base=height

1. Suppose that the Marginal Abatement Cost function and the Marginal Damage function for an industry are given as follows: MAC = 100 - 0.8e MD = 0.2e For simplicity here, we are assuming that they are linear. a. Graph the MAC and MD curves for this industry. Make sure you are marking out any and all relevant axis intercepts. b. Suppose that an emission tax is imposed to achieve the efficient outcome, at what value should the government set the tax? Explain. c. At the efficient tax established in part b. what is the expected level of emissions? Explain. d. At the efficient tax, what is the dollar amount of the tax payment by firms to the government? Explain. e. What is the total abatement cost incurred due to the tax? Explain. f. What is the total cost to the firm with this emissions tax? Explain. g. Which policy is more costly to the polluting firm? An efficient standard or an efficient emissions tax? Explain. Use numbers to support your answer. Hint for Question 1: remember from basic algebra how to calculate the area of a triangle A = (1/2)×base=height

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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